North American publicly held suppliers have decreased the cash conversion cycle, the length of time between investing a dollar into production until a sale of a product is made, by 5 percent, according to the Ernst & YoungCash on the Road study released this month.

Peter Kingma, principal of working capital advisory services at EY, said increased competition from private equity-owned suppliers put pressure upon public suppliers to manage cash differently.

"Over the last five years, North America suppliers are doing better because most of the tier-ones performed corrective action," Kingma, co-author of the study, told Crain's.

"Typically, we've seen organizations manage to quarterly expectations, but that doesn't help long-term cash flow; that's changing due to the prevalence of private equity in the market, where mature public companies are benchmarking themselves against the PEs who focus on improving cash flow."

"Suppliers have learned stronger working capital works for them strategically," Kothari said. "Cash flow is really important for new investments, new tools, etc."

For example, Livonia-based TRW Automotive Holdings Corp. increased capital expenditures in 2013 to $735 million from $623 million in 2012. Auburn Hills-based BorgWarner Inc. increased expenditures to $417.8 million last year from $407.4 million in 2012.

Kingma said, in years past, many executives didn't understand managing the benefit of managing the balance sheet, but have since learned from the success of private equity-owned suppliers.

Having visibility of cash flow throughout an organization on a longer timeline is also boosting organizations' ability to successfully perform merger and acquisition activity, said David Sowerby, portfolio manager in the Bloomfield Hills office of investment firm Loomis Sayles & Co. LP.

"Any time I sit across the table from a CEO or CFO and they say their focus is on cash flow, that's a story I want to keep listening to," Sowerby said. "This phenomenon began in the dotcom bubble but has intensified in automotive since the recession and recovery. Public suppliers are generating EBITDA (earnings before interest, taxes, depreciation and amortization) faster, and we're seeing cash flow growth of 10 percent to 15 percent, which makes it an attractive environment (for deals)."

However, while the cash conversion cycle has been improving for larger suppliers, the smaller peers in the base haven't fared as well.

In 2013, large North American auto suppliers' cash conversion cycle was 30 percent quicker than smaller suppliers in the market, according to the EY study. This figure has grown from 7 percent in 2007.

Larger suppliers have more leverage to combat pricing pressure from automakers, negotiate more favorable terms and drive greater efficiency in manufacturing and procurement, the study said.

Kothari said increased demand from automakers could cripple the base of smaller suppliers if they don't take action to improve their working capital.

"While OEMs are a little more understanding, the increased demands have huge implications to the supply base," Kothari said. "Moving payment terms from 30 days to 90 days could absolutely wipe out a lot of companies right now because they can't manage the float."

However, Kingma said, automakers and larger tier-one suppliers have recognized the gap and are working more collaboratively to improve cash flow through the supply chain.

"This is a much more collaborative environment, and it will improve the balance sheet for everybody," Kingma said. "There's room to grow, certainly, but it's very important to the supply base to have real visibility of the cash flow coming in the door and everyone is managing the process to solve the problem."

As the pace of production continues to escalate — production volume in the U.S. is expected to exceed pre-recession levels this year — it's become even more critical to continue efficiency initiatives, the study said.

The top 50 global automotive suppliers have as much as $51 billion tied up in working capital, an improved figure, according to the study. That represents nearly 10 percent of their combined revenue.

Suppliers will need to create more efficient billing and cash collection systems, expand shared services and reduce complexity in processes, among other initiatives, to further reduce the cash conversion cycle, the study said.

"It's a capital-intensive industry, and its ability to manage its balance sheet has never been more critical," Kingma said. "The future depends on it."